Federal government updates guidance regarding Canada’s new modern slavery legislation

The federal government has updated the guidance it published on December 20 on Canada’s new modern slavery legislation. Some of the updates put in writing what was stated during the webinar held in January by Public Safety Canada, or otherwise provide clarification. The intent and impact of other changes are more difficult to interpret.

Canada’s new modern slavery legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act (the Act), came into force on January 1, 2024. The federal government first published guidance on the Act’s requirements on December 20, 2023. See here and here for more information about the legislative requirements and earlier guidance.

On March 7, 2024, the federal government published amended guidance, together with a series of FAQs. The updates relate primarily to formatting and filing considerations, as well as to understanding which entities are required to file a report.

Confirmatory / clarification updates

• Page limit: While the original guidance sets out a 10-page limit for reports, the amended version merely recommends that reports not exceed 10 pages. The government had already clarified its position during the January webinar, which has now been confirmed in writing.
• Report format / structure: The original guidance suggested that the questionnaire could be used as a template for preparing the report, stating that entities could use the exact same information and structure in the questionnaire as in the report. This guidance has been amended to clarify that the questionnaire may be used as a resource to help develop the report, but any suggestion that it is acceptable as a template or method of structuring the report has been removed.
• Translation: The updated guidance clarifies that, while the government recommends that reports be submitted in both English and French, entities are not required to translate their reports. If the report is translated, the two versions may be submitted to the government as two separate PDF files. 
• Public accessibility: The federal government is required pursuant to the terms of the Act to make the reports publicly available on the Public Safety website. The updated guidance clarifies that only the reports will be published on the website (and not the questionnaires), but adds that “select identifying information” submitted through the questionnaire will also be published on the website (without stating which information).
• Posting report on company website: The Act provides that entities are required to post a copy of their reports “in a prominent place” on their websites, and should do so upon filing the report with the government. The guidance has clarified that entities should publish the report on their websites “at their earliest convenience” following their filing with the government and, if they have filed early, should not wait until May 31.

Applicability of the modern slavery legislation

A number of the changes to the federal government’s guidance relate to the basic question of which organizations have reporting obligations under the Act. To be required to submit a report, a corporation, trust, partnership or other unincorporated organization must: (1) meet the connection-to-Canada and financial threshold tests within the definition of “entity” in section 2 of the Act; and (2) produce, sell or distribute goods in Canada or elsewhere or import goods into Canada, or control an entity that does any of the foregoing, all in accordance with section 9 of the Act.

Two-Part Test for Determining “Reporting Entity” Status

Part one: connection-to-Canada and financial thresholds

• Connection-to-Canada: In order to satisfy the definition of an “entity,” an organization must either be listed on a stock exchange in Canada or have a place of business or assets in Canada or otherwise do business in Canada. For many organizations it will be clear whether this test is met. Where it is not clear, the guidance now provides that tax and employment-related records can be used.
  
  The guidance also provides that, in assessing whether an organization is “doing business in Canada,” it may use the factors considered by the Canada Revenue Agency when determining if a non-resident person is “carrying on business in Canada” for GST/HST purposes.
• Financial thresholds: Unless the organization is listed on a Canadian stock exchange, it must meet two of the three financial thresholds to be considered an “entity”: at least $20 million in assets, $40 million in revenues and/or 250 employees. The legislation provides that the tests should be based on the entity’s consolidated financial statements. The updated guidance clarifies that a subsidiary should use its own financial statement and not the consolidated financial statement of its parent company in making this determination. However, as was previously stated in the guidance, an entity’s assets, revenues and employees do also include those of any entity that it controls (i.e., its subsidiaries).

Part two: producing, selling, distributing or importing

The amendments to the guidance that are more difficult to interpret relate to the second part of the test of a “reporting entity.” As stated above, section 9 of the Act provides that any entity producing, selling or distributing goods in Canada or elsewhere or importing goods into Canada, as well any entity controlling an entity that does one of the foregoing, has reporting obligations under the Act. The production of goods includes manufacturing, growing, extracting and processing goods.

However, where the guidance used to repeat the wording of the section 9 test and state that the Act applies to entities producing, selling, distributing or importing goods, it now states that reporting requirements apply to entities producing or importing goods – references to selling and distributing goods have been removed. The implication of this is that the Act does not apply to entities that sell and distribute goods unless they also either produce or import goods.

Notwithstanding the amended guidance, the wording in section 9 of the Act remains unchanged, as does the government’s questionnaire, which includes a question about whether the entity produces, sells, distributes and/or imports goods.

Moreover, the government has not stated it is intending to amend section 9 of the Act or that the intent of its amended guidance is to change the test for a reporting entity from what is otherwise clearly set out in section 9. Accordingly, the intent and effect of the amended guidance are unclear. It is possible that the government was only intending to clarify the meaning of “producing” and “importing,” and therefore removed the references to “selling” and “distributing” because it was not providing guidance on those terms.

Without a clear statement from the government as to the intent of its revised guidance, we believe there is risk in taking the position that the Act only applies to entities that produce or import goods.

Confirmatory / Clarification Updates Regarding Applicability

• Foreign corporation parent: The government has confirmed that in situations where a Canadian company is controlled by a foreign corporation, if that foreign corporation meets the two-part test for a “reporting entity” described above, then it is also subject to the reporting requirements.
• Provincial Crown corporations: Provincial and municipal governmental institutions are not subject to the reporting requirements under the definition of “government institutions” in the Act. However, the government has confirmed that some provincial agent Crown corporations may be subject to the reporting requirements by meeting the two-part test for a “reporting entity” described above.